The Australian Dollar (AUD) fell to a fresh weekly low against the US Dollar (USD), with the AUD/USD pair dropping to the 0.7135 region during the first half of the European session on Wednesday. This decline followed an intraday uptick to the 0.7180 supply zone and occurred despite a mildly softer US Dollar, indicating that domestic factors weighed more heavily on the AUD's performance [1].
Key data from the Australian Bureau of Statistics showed that headline Consumer Price Index (CPI) inflation slowed from 4.6% year-over-year in March to 4.2% in April. Additionally, the Australian unemployment rate unexpectedly rose to 4.5% in April, accompanied by a fall in the number of employed people. These developments dampened expectations for further interest rate hikes by the Reserve Bank of Australia (RBA), with traders now pricing in only around a 10% chance of a rate hike in June. Market consensus is shifting toward a potential rate hold or a single 25-basis-point hike later in the year [1].
On the international front, tentative progress in US-Iran diplomatic talks eased fears of severe energy supply disruptions, leading to a modest downtick in crude oil prices and a fall in US Treasury yields, which typically undermines the USD. However, renewed US attacks on Iran and ongoing disagreements over Tehran's nuclear program and the Strait of Hormuz kept the geopolitical risk premium in play. This, combined with market bets for at least one 25 bps rate hike by the US Federal Reserve in 2026, favored USD bulls and suggested further downside for the AUD/USD pair [1].
Analysts noted that the path of least resistance for the AUD/USD pair appears to be to the downside, with the potential for a follow-through decline toward retesting the monthly swing low below the 0.7100 mark [1].
CONCLUSION
The Australian Dollar's decline was driven by softer inflation, rising unemployment, and reduced RBA rate hike expectations, outweighing a mildly weaker US Dollar. Market sentiment remains bearish for the AUD, with analysts seeing further downside risk as traders anticipate limited RBA tightening and persistent global uncertainties.